
7 retirement trends to watch in 2017

Fiduciary framework
Trisha Brambley, CEO of Retirement Playbook, says it’s critical to vet the team of prospective advisers and the intellectual capital they offer. Her firm offers employers a trademarked service that’s akin to a request for information that simplifies and speeds the competitive bidding process.
While the incoming Trump administration could delay, materially modify or altogether repeal the Department of Labor’s final fiduciary rule, it cannot reverse a “new awareness around the harm that’s created by conflicted advisers and brokers,” cautions David Ramirez, a co-founder of ForUsAll who heads the startup’s investment management. He expects plan sponsors who are managing at least $2 million in their 401(k) to continue asking sophisticated questions about the fiduciary roles his firm and other service providers assume and how they’re compensated. Ramirez points to a marketplace that’s demanding greater transparency, accountability and alignment of goals and incentives irrespective of what the DOL may require.
One way to improve the nation’s retirement readiness is by “fixing all of the broken 401(k) plans with between $2 million and $20 million in assets” that are paying too much in fees, doing too much administrative work or taking on too much liability, according to Ramirez. “In 2014, nearly three out of four companies failed their 401(k) audit and faced fines,” he notes, adding that last year the DOL flagged about four of 10 audits for having material deficiencies with the number being as high as two-thirds in some segments.
While litigation over high fees and the DOL’s fiduciary rule may not have a significant impact on small and mid-market plans, they’re spotlighting the need to make more careful decisions that are in the best interest of plan participants. That’s the sense of Fred Barstein, founder and executive director of the Retirement Adviser University, which is offered in collaboration with the UCLA Anderson School of Management Executive Education. He predicts there will be less revenue sharing in the institutional funds arena and better vetting of recordkeepers, money managers and plan advisers in terms of their fees and level of experience.

Default-driven plan design

Financial wellness
For employers, a key to reaching millennials on financial wellness is through text messages over all other means of communication, suggests Ramirez, whose firm is able to get 18- to 24-year-olds saving 6.7% on average and 25 to 29-year-olds 7.3%. As part of that strategy, he says it’s important to set realistic goals, such as new entrants into the workforce deferring 6% of their salary before increasing that amount with rising earnings. The idea is to establish a culture that turns millennials into super savers.
“We’re seeing employers help their employees with just setting a basic budget,” says Rob Austin, director of retirement research for Aon Hewitt. “It can also move into things like saving for other life stages.”
Aon Hewitt recently released a report on financial wellness showing that 28% of all workers have student loans. While researchers noted that roughly half of millennials were saddled with this debt, the margin was cut in half for Gen Xers (about 25%) workers and halved again for baby boomers (about 12.5%). The employer response has been somewhat tepid, according to Austin. For example, just 3% of companies help employees pay for student loans, about 5% help consolidate those loans and 15% offer a 529 plan.
Financial wellness is being expanded and embedded into retirement programs to serve a growing need for more holistic information, observes Brambley. “A lot of people don’t even know how to manage a credit card, let alone figure out how to scrape up a few extra bucks to put in their 401(k) plan,” she says.
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401(k) plan fees
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The discovery coincided with the start of his latest advisory venture, which was designed to help shepherd sponsors through the 401(k) fee minefield with objective information to determine that the fees they were paying were reasonable and, thus, in the best interest of participants. But Benna didn’t see much demand for the service he envisioned, so he’s now in the throes of writing his fifth book, whose working title is “Escaping the Coming Retirement Crisis Revisited.”
Litigation over high fees has at least raised awareness among plan sponsors about the need for reasonable prices, along with sound investment offerings, as regulators step up their scrutiny of fiduciary duties, Austin says. While not necessarily related, he has noticed that nearly as many employers are now charging their administrative fees as a flat dollar amount vs. those that historically charge a percentage of one’s account balance. “If you have a $100,000 balance, and I have a $1,000 balance, you and I have access to the same tools and same funds,” he reasons. “So why would you pay 100 times what I’m paying just because your balance is higher?”

Automation
For instance, that means no longer having to manually sync the 401(k) with payroll when employees change their deferral rate or download the payroll report to a 401(k) plan recordkeeper. “That’s 1990s technology,” he quips. “Signing up for the 401(k) can be as easy as posting a picture on Instagram or sending a tweet.”
Apart from vastly reducing the administrative burden, he says it also allows makes it easier for plan participants to enroll, increase deferrals, receive better advice based on algorithmic formulas and improve communications. The upshot is that when all these pieces of the puzzle are in place, ForUsAll has found that participants in the plans it manages save on average 8% of their pay across all industries and demographics.
Barstein believes there’s still going to be a lot of movement toward auto-enrollment and escalation, as well as the use of professionally managed investments like target-date funds, which he predicts will become more customized. “We’re starting to see where participants in one plan can choose a conservative, aggressive, or moderate version of a target date,” he says of efforts to improve an employee’s financial wellness.

Streamlined investments
Cohen agrees that plan sponsors continue to see the benefit of streamlining the menu of options for a more manageable load. As part of that movement, he sees the adoption of “white labeling” of investment options that replaces opaque, retail-branded fund names with accurate generic descriptions. For example, they would reflect asset classes (i.e., the Bond Fund or the Stock Fund). The thinking is that this approach will generate more meaningful or practical value for participants whose knowledge of basic financial principles is limited.
Confining the selection of investments to a handful of funds in distinctly different asset classes will invariably make the process much easier for participants, Brambley suggests. This enables plan sponsors to wield “more negotiating power” on pricing because they have funds collecting under various asset-class headings, she explains.

Recordkeeper consolidation
The most noteworthy activity will involve big-name mergers as opposed to scores of recordkeepers leaving or merging, he believes.
“If I was a plan sponsor, I’d be concerned because nobody really wants to go through a conversion,” Barstein says. “I’m sure JP Morgan forced a lot of their clients to either consider changing when they went through the acquisition by Empower.”